A series of recent decisions in the Second and Ninth Circuits—including Viacom v. YouTube and UMG v. Veoh (both dealing with the distribution of user-posted copyrighted content by video hosting services) and AP v. Meltwater (addressing the redistribution of news content by an electronic clipping service)—have applied established copyright principles to new internet-based systems that are designed to redistribute other parties’ copyrighted content. Continuing that trend, the decisions in WNET v. Aereo, Inc. and Capitol Records, LLC v. ReDigi, Inc., address the on-line redistribution of network television programs and digital music, respectively. So far, Aereo’s system has survived judicial review; ReDigi’s has not.

Aereo
In WNET v. Aereo, Inc., television broadcasters (and other copyright owners of broadcast television programs) brought a copyright infringement lawsuit against Aereo, which provides a service allowing subscribers to watch and record broadcast television programs on the Internet. The district court denied the broadcaster plaintiffs’ preliminary injunction motion, principally because the plaintiffs were not able to show a sufficient likelihood of success on the merits of the case. On April 1, 2013, the Second Circuit affirmed.

Aereo concerns the exclusive right of a copyright holder to publicly perform his or her work. 17 U.S.C. § 106(4). The Copyright Act defines “perform” as “to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.” 17 U.S.C. § 101. Performing a work “publicly” means:

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

Id. (emphasis added)

In Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (Cablevision), the Second Circuit had held that Cablevision’s transmission of a recorded program to an individual subscriber through its Remote Storage Digital Video Recorder (RS-DVR) system was not a public performance of the program, because in each case a single subscriber requested that a copy be created and that subscriber alone received a transmission generated from that copy.

Aereo’s system was designed based on Cablevision’s holding. Aereo transmits broadcast programs by capturing the broadcast signal with a different antenna for each subscriber. (Aereo’s facility contains boards with thousands of tiny antennas—each roughly the size of a dime—so that each subscriber using the service has access to a single antenna.) Because each subscriber has access to a single copy of a broadcast through that single antenna, and no other subscribers can receive a transmission from that copy, the Second Circuit held that the transmission did not constitute a public performance.

In a forceful dissent, Judge Chin described Aereo’s technology platform as a “sham” and a “Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.” (Dissent at 2.) Judge Chin stressed that Cablevision had licensed the content it redistributed, while Aereo had not. (The majority found the distinction insignificant because the issue was whether the transmission was a public performance at all—not whether it was a licensed public performance.)

The majority acknowledged that Aereo was likely designed with an eye toward avoiding copyright liability, but it did not find this fact dispositive. The majority mused that “[p]erhaps the application of the Transmit Clause should focus less on the technical details of a particular system and more on its functionality,” yet the court read its past decisions, including Cablevision, as dictating that “technical architecture matters.” (Slip Op. at 31.)

ReDigi
In Capitol Records, LLC v. ReDigi, Inc., 12 Civ. 95 (March 30, 2013), Judge Richard Sullivan of the Southern District of New York addressed whether the defendant could permissibly enable its users to buy and sell “used” digital copies of songs.

Under the “first sale” doctrine, notwithstanding a copyright holder’s exclusive right to distribute its own works, “the owner of a particular copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 U.S.C. § 109. Thus, used record stores, video rental stores and libraries may distribute already purchased copies of copyrighted works without seeking further authorization from the copyright owners.

ReDigi styles itself as a marketplace for “used” digital music, relying on the first sale doctrine to protect its users’ transactions. Users can buy and sell “used” music files at a lower price than is offered on “retail” digital music marketplaces like iTunes. The way this works is that ReDigi requires users to upload their digital music files to a cloud server (which deletes the files from the user’s own hard drive); then, when a user sells a song file, she loses access to that file and the purchaser gains access to it. In other words, ReDigi is designed so that a file may be transferred from one computer to another such that, for all practical purposes, only one copy of the file exists at any given time.

Capitol Records sued ReDigi, arguing that the service violated Capitol’s exclusive rights to reproduce and distribute its copyrighted sound recordings. On cross-motions for summary judgment, the court ruled for Capitol. The court’s decision turned on a fundamental difference between transferring digital musical files and transferring ownership of vinyl records or CDs: in order to transfer a digital file, a new copy must be created on the recipient’s hard drive, even if the original file is simultaneously deleted and only one copy remains in existence after the transfer:

Because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because digital music files must be embodied in a new material object following their transfer over the Internet, the Court determines that the embodiment of a digital music file on a new hard disk is a reproduction within the meaning of the Copyright Act.

(Slip Op. at 6.) In the court’s view, “[i]t is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.” (Slip Op. at 7.)

The court rejected ReDigi’s first sale doctrine defense. First, the court held that ReDigi violated the reproduction right, while the first sale doctrine limits only the distribution right. Second, because it found that the copy created on the recipient’s computer was an unauthorized reproduction, the court held that the copy was not “lawfully made under [the Copyright Act],” which it must be in order for the first sale doctrine to apply. 17 U.S.C. § 109. The court stated that the first sale doctrine protects the sale or ownership of a particular physical copy of a work, and found that ReDigi is not facilitating distribution of a physical copy of a work—it is facilitating the creation of a new copy. Because digital copies of works can never be transferred to another computer without technically creating a new copy, the decision raises the question of how the first sale doctrine could ever be applied to digital content.

Observations
In both Aereo and ReDigi, the courts struggled to apply the Copyright Act to new distribution platforms that had not even been contemplated when the Act was drafted. This entailed determining both how to view the platforms and whether to focus on their technical aspects or their functionality.

With respect to the first issue (how to view the platforms), both courts heard competing descriptions of the technologies at issue. Just as in the Meltwater case—where the parties disputed whether Meltwater was offering something akin to a search engine or an electronic clipping service—the parties in Aereo and ReDigi offered competing analogies: Was Aereo’s system more like a cable service, or a combination of a television, DVR and Slingbox (which transmits content from a DVR to a computer or mobile device)? Was ReDigi’s permitting a transaction more like selling a used CD or burning a new one (or perhaps like “the Star Trek transporter—‘Beam me up, Scotty’—[or] Willy Wonka’s teleportation device, Wonkavision” (Slip. Op. at 2, n.2))? Because both cases involved the application of old law to new systems, drawing analogies to familiar technologies was critically important in orienting the courts.

Even more important was the issue expressly raised by the Second Circuit: whether to focus on “technical details” or the functionality of the technologies at issue. Even though Aereo may have retransmitted the same programs to thousands of users, the Second Circuit held that Aereo was not publicly performing those works (as a cable broadcaster would) because each transmission originated from its own tiny antenna. Although the majority noted that precedent required a technical approach, Judge Chin saw this holding as elevating “form over substance.” (Dissent at 4.) In ReDigi, even though the practical effect of ReDigi’s system, at least for the users of its service, would be no different than the sale of a physical record (i.e., a seller previously owned a copy of the song and, after selling it, no longer owned that copy), the fact that the digital transfer of the song file entailed creating a new copy of the file rendered the first sale doctrine inapplicable.

Both decisions may be appealed, and digital media companies will no doubt continue to develop innovative ways of redistributing content, challenging courts to make new interpretations of a Copyright Act drafted before any of these technologies were imagined.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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